US banks will enjoy stronger growth this year from their “bread-and-butter” business of taking deposits and lending money as the US economy expands and the Federal Reserve prepares to raise interest rates for the first time in three years.
The Fed’s move could bring an end to the low interest-rate environment which banks have faced for most of the past decade and, particularly, through the Covid-19 pandemic.
Net interest income, the difference between what banks earn from lending and payout on deposits and other funds, declined during the pandemic due to interest rate cuts and a drop in borrowing.
But this is about to change in 2022.
The Fed on Wednesday signalled it is likely to raise US interest rates in March.
Federal funds futures have priced in another three rate hikes later in the year.
“Banks that, for the last ten years, were not able to enjoy a steady yield curve are going to get it,” said Ken Leon, research director at CFRA Research.
Published in The Express Tribune, January 28th, 2022.
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